This site for Investors, Students and who interested in research, assignment and write anything about consultancy work. This is about variety of company information for investors and stakeholders for decision making.

Google+ Badge

Thursday, October 4, 2012

Chevron Lubricant Lanka PLC (CLLP) is a leading manufacturer
and marketer of lubricants in Sri Lanka.
In this report, financial statements of CLLP were analyzed using
financial accounting tools such as horizontal analysis, vertical analysis and
ratio analysis.

For the analysis annual reports during year 2005 to 2009
were used. In order to perform comparison Lanka IOC was selected as it is a
major industry competitor of CLLP. It was found that CLLP needs to make a huge
effort to protect its current market share. It is recommended to search for and
invest in product and market development in order to increase revenue in
future.

Few limitations of financial statement analysis were also
identified at the end.

CLLP has a positive
working capital and also it shows a trend of increasing for last five years.
Its current ratio is more than 2 during last four consecutive years. CLLP has
maintained its acid test ratio more than 1 for last 3 years. This is an
evidence for good liquidity position of the organization. Table 3‑2 shows liquidity ratios of Lanka IOC during 2005
to 2010. When it is compared, CLLP shows a very strong liquidity position than
Lanka IOC (Figure 3‑1). Lanka IOC has reported even negative working
capital during 2006/7 and 2007/8 financial years.

Annual reports of CLLP during 2005 to 2009 were analyzed
using financial accounting tools namely; horizontal analysis, vertical analysis
and ratio analysis. In horizontal analysis, percentage change calculation and
trend analysis were performed for each element of both income statement and balance
sheet.

It was evident that CLLP’s market growth has stagnated by
year 2009. Due to the heavy competition between many number of industry
players, CLLP has a challenge to protect its current market share. Although
sales have been declined, net profit has increased significantly due to lower
base oil prices in year 2009.

Also CLLP faces increase in distribution cost due to the
investment in its own distribution channel. During last five years CLLP has
been capable of reducing administrative expenses by focusing on cost
consciousness in every level of the organization. Nearly 35% potion of total
assets at the end of 2009 is cash reserve which is the largest portion apart
from the inventory. This shows
inefficiency of using assets for generating revenue.

CLLP is in a good liquidity position than industry
competitor Lanka IOC. But its efficiency is less than Lanka IOC in term of
credit collection and inventory management. Capital structure of CLLP is less
risky and its profitability is far better than industry competitor Lanka IOC.

As opportunity for growth is limited with current product
and market, product development and market development is important for CLLP in
future. Business risk can be reduced using proper diversification. Huge cash
reserve is advantageous in those investments.

It is important to mention limitations of financial
analysis. Year-end values may not be representative enough in some cases which
having seasonal effects. Comparing with competitors is not possible when
accounting methods are different. So it is needed to look beyond financial
ratios, for example industry trends, technological changes, changes in consumer
tastes, changes in broad economic factors, and changes within the firm itself
can be studied.